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Snow Yuants a 10% Revaluation, but will he get it?The
confrontation has mounted since last week. Finance Secretary Snow wants a 10%
revaluation. This issue is now firmly political in the eyes of the U.S. A 10%
revaluation as Greenspan pointed out will do nothing to the Trade deficit.
Even if it were a massive revaluation, it would simply shift the demand for
cheaper goods to other countries. The higher cost of these imports would be
reflected in a higher Trade Deficit, not a lower one. Once U.S. manufacturing
competition has closed down, the U.S. becomes dependent on imports, so to increase
their price means to increase the Trade deficit, again as Greenspan pointed
out. The Chinese have made it clear that they will not be pushed around by
the U.S. So why does Snow keep pushing, is it for home consumption?

Certainly if the Financial Secretary of Honk Kong Mr Tang, is correct and
China re-values the Yuan in terms of a basket of currencies, the $ could find
itself on the back foot! "Gold - Authentic Money" will have an in depth
look at the potential revaluation of the Yuan. We believe it could turn
out to be the most significant foreign exchange development since the U.S.$
and the Pound Sterling floated in the early 1970' - Brace yourselves!

The
Bush administration, reacting to a flood of Chinese clothing imports since
January, announced on Friday that it would impose new quotas on cotton shirts,
trousers and underwear from that country. The quotas will take effect when
the administration notifies China of its decision and discussions are held
about the size of the limits. China has already warned the United States and
Europe that it will resist any attempt to limit its textile and apparel exports.
The United States will limit any growth in Chinese imports of cotton shirts,
trousers and underwear to 7.5% a year.

Several bills are being debated that would impose penalties on China for currency
manipulation, violating intellectual property rights and following other forbidden
practices like giving producers overly lenient loans and export tax rebates.
With this action already on the table, China has little more to lose. What
lies ahead if our assessment is correct is a fundamental shift in the global
monetary system, which will benefit gold!

The Indian perspective on gold - The S.B.I. gold deposit scheme is to end.
Hailed with much fanfare, in November 1999, the SBI's gold deposit scheme had
attracted 400 kgs in the first week after its launch. But since then, the
growth has been dismal. The total gold deposit holding of the five banks
including SBI, Corporation Bank and Indian Bank that were allowed to offer
such schemes is pegged at a mere 9-10 tonnes. As a result the SBI will soon
stop accepting any further deposits on this scheme. Why, because it's not
profitable anymore!

These deposits offered an interest of 3-4% at the time when they were launched
but SBI reduced the rate to 1.5% in 2002. As the rates on gold deposits fell
across the globe SBI also realigned its interest rates. Today, the rates are
a mere 0.01%, signaling the end of the scheme. The scheme required consumers
to deposit gold ornaments, or coins, or bars with an authorized bank. The bank
would melt the gold articles to check for purity and fix a price to them. This
would be the value of the deposit and the bank would go on to offer interest
on these deposits. Investors were apprehensive about this process, seemingly
preferring to retain the aesthetic value of their jewellery.

Of more pertinence was that the scheme ignored the fact that total control
over the gold passed from the depositor to the bank. Whilst in the developed
West such control is permitted by all citizens, in India it appear to be largely
unacceptable. We would do well to understand this aspect of gold, because it
is one of the fundamental qualities gold has that is beyond the control of
government and banks.

Understand that gold is under the control of the possessor and outside the
control of both banks and government. This is valued in India. So such schemes
that take this gold and controls it, giving paper money profits in return are
breaching this quality. A great deal more has to be offered to make such schemes
attractive enough to override this beautiful quality of the metal. After all,
all that is being offerred is a chance to make some profit. Gold is vital as
a measure of financial security and not as it is in the West, a source of profit.
To understand the Indian attitude to gold this feature must be an integral
part of such understanding.

Gold Investors from small to large dislike the control banks and the government
are inclined to exercise over their business. Tax avoidance and evasion are
a national pastime, due to the usually corrupt government officials who impose
taxes. The present V.A.T. strike is one such example. Even though the government
is reducing V.A.T. on gold to 0.25% the spectre of letting inspectors into
the books of these Investors is unacceptable to a large part of the market,
particularly where "Black Money" is a strong force in the market.

Most such schemes in India have a similar poor track record. As we have
described in the past, gold is a very private matter in India.

"Global Watch: The Gold Forecaster" covers the global gold market.
It specializes in Central Bank Sales and details, the Indian Bullion market
[supported by a leading Indian Bullion professional], the South African markets
[+ Gold shares shares] plus the currencies of gold producers [ Euro, U.S. $,
Yen, C$, A$, and the South African Rand]. Its aim is to synthesise all the
influential gold price factors across the globe, so as to truly understand
the global reasons behind the gold price.FIND OUT MORE

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